DSCR loans
A DSCR loan asks whether the rent covers the payment, and nothing about your salary. That makes it the standard route past agency limits for investors — and puts the loan outside the consumer rulebook.
Qualifying the property, not the person
A DSCR loan asks one question: does the rent cover the payment? The debt service coverage ratio is the rent divided by the monthly cost of the loan — principal, interest, taxes, insurance and any HOA fees.
At a ratio of 1.0 the property pays for itself exactly. Most lenders want 1.1 to 1.25; some write below 1.0 at a higher rate. Your salary, your tax returns and your employment do not enter the calculation at all.
That is the appeal for investors: a borrower with several financed properties hits agency limits quickly, and each new agency loan drags the whole portfolio’s paperwork behind it. A DSCR loan looks only at the house being bought.
What it costs
DSCR loans are non-QM, and most are written for business purposes — a purchase through an LLC, for rental rather than occupancy. That matters beyond the price: a business-purpose loan sits outside the consumer mortgage rulebook, so the disclosures and protections that apply to a home you live in do not apply here.
In the filings, business-purpose purchase loans were written at a materially higher median rate than consumer loans, and the majority of them do not report closing costs at all — the reporting exemption for business lending means the fee side is largely invisible. The figures are here.
Down payments typically start at 20% and rise for weaker ratios. Prepayment penalties are close to standard: a stepped penalty over the first three to five years is common, and it is often what buys the rate down.
The ratio is where the negotiation is
Two levers move the ratio, and both are worth understanding before you accept a rate.
The rent the lender uses. Some take the lease; some take the appraiser’s market-rent opinion; some take the lower of the two. On a property renting below market, that choice decides the deal.
The payment the lender counts. An interest-only period lowers the payment and raises the ratio, which is why so many DSCR loans carry one. It makes the property qualify — it does not make the loan cheaper, and the principal is still waiting at the end of the period.
Before you take one
Ask for the penalty structure and the exact ratio calculation in writing, and run the property’s numbers with the interest-only period over as well as during it. If the deal only works while principal is deferred, it is not the property paying for itself.